Indeed, Now What Do I Do?
Haven’t we all wondered what exactly a dog expects to do if it should catch the hubcap of a moving car? Of course, the answer is that the dog doesn’t know; it just feels compelled to run after the car.
This notion came to my mind last Thursday morning — October 17th — when I reached my financial milestone of complete debt elimination, except that I’m not totally clueless as to what I’m going to do next, but more about the order of my next milestones. However, without a doubt, reaching this point has been quite a ride.
After giving much thought during my three-week sick leave from work in September 2011 to the notion of when did I last feel content and in control of my life, I got up on Saturday, October 1, 2011, one week after returning to my job, and began working on a spreadsheet. Indeed, it occurred to me during the time I was putting everything about myself into question that one of my many bad decisions in the previous years had been not to pay attention to my finances, for I was very fortunate in that there seemed to always be enough money coming in to cover all the bills and simply glide by. Of course, having the bailiff show up at my door on the morning of my very first appointment with Lucy brought home that I wasn’t really doing such a great job at gliding by.
So, that October morning, I mustered up the courage to look at my accounts online to see how bad things were. I found just over $21K of debt which I immediately consolidated onto my line of credit, and tried to think of all the unusual expenses I would have to cover in the coming months, like weekly appointments with Lucy and the divorce. But then two questions popped into my mind.
- From March 2006 to August 2007, somehow I had managed to clear almost that much debt. Mind you, my monthly expenses are somewhat higher in Montréal than they were in Halifax back then, but not insurmountably higher. Why can’t I do that again? Have I allowed my list of wants to grow into my income?
- Why is it that, when someone is paid every two weeks, there really isn’t two “extra” paycheques per year?
That second question in particular is what brought me to think about cash flow for an entire year rather than month by month and Gail Vaz-Oxlade’s “magic jars” in which she gets people to put cash for a specific purpose (food, transportation, etc.). I combined and adapted those two notions by listing all my recurring expenses like rent, phone, insurance, steady debt repayment and so on, figuring out how much they each cost per year, and dividing each of those figures by 26 — the number of pay periods in one year. This exercise confirmed that I was very lucky to have more than enough money left over for food and vices, and with some trimming back here and there, I could put even more on debt repayment.
So, after resetting the counter at zero and figuring out my expected cash flow for the next two years, I implemented my plan starting with my paycheque of October 6, 2011. My best-case scenario, which included paying for my (failed) therapy to quit smoking and my divorce lawyer, projected total debt elimination by the beginning of 2014. “Best-case scenario” was the operative term; I hadn’t thought through vacation travel and couldn’t anticipate hefty fines, car breakdowns, or the need to buy new tires or dress clothes. However, I also assumed no salary increase, no extra pay for overtime or no better-than-expected year-end bonus, and no elimination or reduction of recurring expenses (e.g., getting rid of my land line in favour of a MagicJack, closing the account I no longer needed at my backup web host, closing dormant resold accounts with my web host that I’d simply left open for no good reason, etc.).
In the end, in precisely 743 days (or 2 years, 1 week and 5 days), I paid off just shy of $28.5K. To achieve this, though, I placed exactly one-third of all income during that time on debt reduction and I don’t recommend that anyone else do the same because, unlike myself, people have a life. I had lived below the poverty line for the 10 years prior to March 2006, which is how I got into debt in the first place, and my best gross income before that was one exceptional year in the early ’90s when I made a hair over $30K. In other words, I’m accustomed to getting only what I need and not what I want — within a few exceptions, of course, owning a car being one of them.
Now that’s not to say that I think I’m more virtuous than everyone else! I just think that most people, when they attain a level of financial security, quite naturally allow themselves to indulge more in what they want. I mean, despite appearances, I feel I’ve done quite a lot of that since 2006, at least by my standards. But just like a diet will fail if you’re depriving yourself to the point of always feeling hungry, an aggressive approach to debt elimination as the one I adopted is doomed if it makes you feel resentful for depriving yourself so much when you know there’s in fact enough income coming in that you shouldn’t be feeling deprived.
At any rate, now that my debt is finally at zero, I still have about two months left for my plan to be finalized, for now I have to refill the virtual “jars” from which I borrowed to get out of debt faster than anticipated. However, by New Year’s Day, I’ll have a few Ks of savings with which I can do whatever I want, which brings me to the dog chasing the hubcap. I know what’s first on my list: buying an extra week’s vacation for 2014, assuming my boss allows me to do so. As for the rest, well …that’s a topic for my next blog entry.
Life on Hold
I have had a series of highly geeky musings in the works for over a month now that I’ve obviously neither completed nor published yet, and I’ve had several other “bloggable” thoughts (or rants) in my mind that, for whatever reason, I never firmed up. I hope to get to those eventually, but for now I offer you this musing for the simple fact that I’ve gone far too long without posting anything at aMMusing.
I don’t like to admit it but I have to: I’ve pressed the Pause button on my life.
That statement sounds depressing, doesn’t it? Yet strangely enough, it isn’t …at least not for me. When I think to how I felt two years ago, I can assert that I’m perfectly fine. Back then, I couldn’t even stand myself; I felt like I wanted to escape by crawling out of my own skin. But three unrelated and quite trivial events that occurred in the last few days have brought the phrase “Life on Hold” to my mind as a “bloggable” topic.
First, I was sitting having a coffee in a park in the Village a few nights ago when this guy, also named Maurice and also born in ’65, sat in front of me to see if I recognized him. I did. We had — or actually, he had — struck up a conversation with me about a month ago. Some things he said back then made me not like him very much, so when that happens, I find it difficult to sustain a conversation with that person afterwards. Clearly having forgotten that he had already posed me the question, he asked me the other day if I was “with someone.” When I repeated my answer that I wasn’t, he asked me for how long I have been by myself. And that’s when it hit me like that proverbial ton of bricks: it will be four years soon! It doesn’t seem that long ago, yet the facts and the calendar can’t lie. At the same time, NowEx does seem like a distant memory but a memory nonetheless: just last night, I had another nightmare in which he featured.
Second, last Thursday evening, I discovered that my bank unceremoniously lowered the rate on its so-called “high-interest” savings account from 1.2% to 1.1%. It’s not a really big deal, except that now I can claim that the bank gives me less than a quarter of what it takes from me in interest on my line of credit. I then figured out that, based on my projections, this tiny 0.1% decrease could represent between 50 to 60 dollars less in incoming interest by the end of 2016 (although I wouldn’t really have the balance being projected since I intend to spend some of it along the way, except it illustrates well the difference ten basis points can make on compound interest). Peanuts, really, but this calculation made me realize the futility of continuing to save as I have — at least for the next few months — while I’m still carrying some debt even if it’s now well below 5K or nearly 85% less than my total reimbursement of so-called consumer debt since Thanksgiving 2011.
Third — and certainly the most trivial — I finally got around to submitting my first reimbursement claim at work for my Internet connection, to which I’m entitled since I work exclusively from home. I’ve said it before: I’m my own worst advocate when it comes to money; I didn’t even submit a claim for my hotel room and train ticket to Toronto in 2009 even though the trip was entirely work-related. So, upon receiving my first reimbursement on the same day I got confirmation that I’m receiving less interest on my savings account, I fired up my uber-complicated but highly effective budgeting spreadsheet and spent hours rejigging it because 50 bucks a month represents more than two years’ worth of power bills …or a very decent dinner out, or a few bottles of non-plonk wine, or a tank of gas, or …well, you get the picture.
As I was doing that — slowly, methodically, yet realizing no sane person would spend as many hours as I have on this thing — I kept hearing one thought in my mind: “Life on hold, life on hold…” Ever since I reconstructed my spreadsheet in late-October and especially after my net debt finally fell to a mere four-digit figure in mid-December, I seem to have declared 2013 as my “last year of sacrifices.” A few months ago I complained that I might be pushing myself too hard on that front, but it seems that I just can’t stop myself. I don’t remember a moment in my adult life when I had no debt AND a realistic hope of staying bad-debt-free, so with that target only four-and-a-half or five months away, I’ve chosen to cut out anything that is absolutely not necessary so that, for the first time in seven years, every cent of my year-end bonus will be all mine and not going right back to the bank.
I’ve developed the discipline of putting aside at least one out of every four dollars I take home without even breaking a sweat! When I first started cleaning up my act nearly two years ago, I knew that my whole budget was a best-case scenario but I told myself that any unlucky break would merely push the target a little bit further. But the bad strokes of luck that did fall onto my path were met with some lucky strikes of almost equal magnitude, so, in my mind, with the target so close, what’s a few more months of austerity if I can gently coast to it? The fact the target is a full four to five months SOONER that my best-case scenario of October 2011 is only egging me on.
Therefore, air-conditioning for the apartment this summer? Forget it; I’ll suffer a bit for one last summer. A nice trip overseas or even to the bloody USA? No, not yet. Finally getting decent furniture? Next year, and that’ll be cash, thank you very much. If I can’t pay for it right then and there or within four to six weeks, it ain’t happening. But, starting in July, I will be using a budget line I haven’t used yet, namely having someone come in to clean my dump once every two weeks. And because I find having only three weeks’ vacation per year isn’t enough, I’ll start buying myself an extra week’s vacation starting in 2014 because I believe my sanity depends on it.
So truth be told, I met the line “life on hold” with a kind of ambivalence when it kept echoing in my mind this weekend. On the one hand, it’s rather pathetic that I should be doing so little these days and I wonder if it’s a mistake to defer living as I am right now. But, on the other hand, the prospect of living well and travelling as so many of my friends and family are able to do, all within my means, is just too damn enticing.
Really, I’m Not! Or Am I?
I’ve been feeling too lazy in the last few days to bother going out much even though I’m on vacation over the Holidays. Granted, the record-breaking 46-centimetres (18-inches) snowfall in only 15 hours over Montréal on the 27th has made going out unappealing, especially since the City expects it will take more than a week to clear up the mess, which means driving and parking around town is a total nightmare.
Still, I’m a bit at a loss to explain why I’ve been putting off going to the Musée des Beaux-Arts de Montréal to see an exhibition I really want to see: Il était une fois l’Impressionnisme. After all, this city does have a completely underground subway and I live only two blocks from a station! But the mere thought of having to bundle up to brace the cold and putting on my heavy and uncomfortable winter boots is enough to make me say to myself, “Nawh…”
So what I have been doing instead?
Well, aside from going to my sister’s for two days over Christmas, I’ve done some reading online. I’ve done a few minor but helpful updates on the web application we use at work. (I consider that stuff more of a hobby than actual work.) I’ve watched some TV. I’ve called a few out-of-town friends. But mostly, I’ve rejigged yet again my budget spreadsheet, which is leading me to seriously question my sanity …in the sense of saying to myself, “Maurice, you’re obsessing over this thing!”
But I think my reasons for coming back to it stems from the fascination I hold as I assess what I’ve accomplished thus far.
- The October 2011 version of my budget was so opaque in comparison to my November 2012 version that it felt like a runaway train. It seemed to work although I didn’t understand how or why, but then I had to make several corrections when it derailed a little bit. In my newest version, however, the Summary tab matches up to the penny at all times with my actual bank balances, which eliminates all confusion and ambiguities.
- According to this August 2012 Globe & Mail article, “the average Canadian’s non-mortgage debt reached $26,221 in the second quarter of 2012, up $192 from the previous quarter,” a level the article calls “a new record high.” I seem to recalll that, when I did my first serious budget in a decade shortly after I started my job in March 2006, my debt was about 125% that figure stated for 2012. Being used to living on very little and not knowing if the job would become permanent, I achieved the remarkable: I brought it down to just 38% by January 1, 2008. Then, however, I did that crazy thing of getting married, so when I picked up the pieces (and myself) and restarted budgeting in October 2011, I was back up — far less deeply than in March 2006, at about 81%. Yet in only 15 months (i.e., in about one week), despite expensive curve balls, failures, and lawyer’s fees for the divorce, I’ll be at 33% and totally in the clear by the end of 2013 (probably much sooner given an important variable I haven’t factored into my calculations and should kick in by early spring).
- I keep coming up with creative and flexible ideas not only to accelerate this debt-elimination plan but also to actually build some savings and to find ways of eventually contributing more towards retirement. Basing myself on the principle of “pay yourself first,” I allow myself a lot of wriggle room on every paycheque — so much so, in fact, that during cold winter months when go out even less, I end up not spending all my “allowance.” So, instead of spending it during the next period, I throw whatever excess — even if it’s only 10 bucks — into debt servicing or savings. It’s amazing how quickly a few dollars here and there add up quickly!
I’ve said it before, but this budgeting thing is not a chore but an ultimate act of optimism for me by virtue of looking years into the future. I’m fortunate in that there’s enough coming in, but the discipline budgeting imposes is allowing me to see some fabulous options in front of me.
- I should be able to pay for my next car in a few years out-of-pocket, which would also be less expensive since many car dealers give a considerable discount on a cash purchase.
- Since I only get three weeks of vacation time (which is not enough) until I reach 10 years of seniority at work but my employer allows me to buy up to five days of vacation time per year, I will soon be able to effortlessly afford such a purchase.
- Going forward, I will always have savings to cover vacation expenses “as I go” rather than putting them on credit and worry about paying later, which is what got me into debt in the first place (aside from the fact I had no choice but to live on credit prior to March 2006).
- I can also think about making big purchases like air-conditioning and furniture without getting back into debt, or at least not on a long-term basis. That’s how I managed to buy winter tires and a new suit in mid-November and had them paid off by Christmas.
- And best of all, I project that in only three years, if nothing goes extraordinarily wrong, I could have from six to nine months of clear salary sitting around, building a bit of interest but being readily available should some personal disaster occur.
The only grey cloud in this sky filled with silver linings is that purchasing a condo in Montréal remains out of my reach. I’d need to make $15K more a year to even scratch the entry level and I sure as hell ain’t going to get myself a(nother) husband just to make a condo happen, so after the extensive number-recrunching I’ve done, I’ve not only stopped even entertaining the thought but also stopped feeling any regret about not being able to achieve that one goal, for really, in all other respects, I’m feeling incredibly empowered and optimistic financially for the second time in my life.
I kind of fell off the budget-tracking wagon just after my summer vacation. My mammoth workbook stopped making sense after making a huge annual payment in early August for something I had planned, so I figured I needed to put the thinking cap back on.
I wasn’t off by thousands but by several hundred dollars. Still, noticing that this was the second time I needed to transfer funds around to bring myself back in sync, I knew I was missing something …but what was it? My theory of virtual or “make believe” jars didn’t get reflected in reality.
I started thinking that perhaps I needed to make my virtual jars more real by moving funds into a savings account when they weren’t needed and bring them back into my current account “just in time.” That way, I would not only not accidently spend those funds but I would also earn a tiny bit of interest which my chequing account doesn’t give. But trying to think about the schedule of transfers between accounts and how much savings I should have at this point gave me head cramps which, in turn, led me to go back to budgeting auto-pilot mode much as I had before last autumn, except this time for only two months.
I finally mustered up the courage last weekend to attack the task at hand. That’s when I immediately noticed that I practically went underground in those two months and, as a result, managed to amass a tidy surplus. But more importantly, I finally found the error in my workbook that had forced me to make those few significant adjustments in the previous year.
Amounts in my base budget changed in the course of the last year. Some line items went up or down; one line item — my landline — disappeared, and my net income decreased enough (due to starting to contribute to the pension plan at work) to throw everything off in my workbook. And that’s when the lightbulb moment came: I had coded stuff to refer to the base-budget line items, so when some changed, they retroactively updated some of the other spreadsheets, effectively rewriting my financial history in difficult-to-trace ways.
So, the solution is not just to have a separate savings account, which certainly helps to make things more concrete, but also to enter actual amounts in cells rather than making a reference to the fluctuating budget line items! At first that seemed counterintuitive for the programmer in me, but I’m seeing now that it’s really a matter of applying the K.I.S.S. principle.
Of course, there’ll be unexpected expenses along the way as there were last year. Take, for instance, that I got my winter tires stolen (I assume by someone in the Charest brood), or that a client I’m having to meet later this month is such a high-profile individual nationally that I can’t possibly show up to the meeting looking like a pauper. But, with a good and realistic budget, it just means it’ll take a few weeks more to reach a zero debt load.
Speaking of debt load: it was at about 60% of my annual take-home pay when I started my budget last year, which I’m given to understand is much less than half of the average Canadian household debt. In one year, I brought that down to about 36%, and I’m still projecting being at or near 0% by the end of 2013 — just as I had calculated a year ago. That’s a pretty damn enviable position to be in, and it means that I know exactly how I will be able to pay for my car’s replacement when that time comes.
Can’t complain about that!
Mistakes, And Recovering From Them
Imagine my surprise a few nights ago when I tried to use my debit card at a Double Pizza outlet downtown but the little device declared not once, not twice, but thrice that there were “insufficient funds” in my account to cover a measly 7 dollar purchase.
According to the “Cash Flow” tab in my fancy dandy budget, there should always be extra money sitting in my account because of the amounts I set aside every paycheque. What’s more, I have a $700 overdraft on my account, so it takes a lot to crash through the bottom. Either Double Pizza’s direct-debit device was defective or something fraudulant happened in my account.
After my third attempt, I looked dejectedly at the pizza and fries on the counter and told the guy at the cash, “It looks like that food is going to go to waste.” But much to my surprise he said, “No, no, no, go ahead and eat, and come back later to pay me.” I frankly couldn’t believe that such trust could exist today in a big city — or anywhere, for that matter — but I suppose I don’t look like the kind of guy who would deliberately try to pull a fast one.
So, I ate and immediately trekked east on Sainte-Catherine to find the nearest branch of my bank with a banking machine. First, I inquired on the balance in my account and got that sinking feeling when I saw that it was indeed in the red by more than $700. Next, wanting to do good by the guy at Double Pizza, I withdrew $20 from my line of credit, walked back to pay him, and took the métro back home so that I could immediately sign into my online banking to find out what the heck was going on.
It turns out my building’s super made the first mistake. She made two deposits for February’s rent. For her first deposit, she forgot to change the date on her stamp, so the date appearing on the back of the cheques for that batch was January 4. In that batch she mistakenly included my post-dated cheque for March’s rent. Then for her second deposit, which she correctly dated with a February date, she included my February rent cheque. Once in the system, though, there are no further checks; there is no system to verify the value date on cheques, so both my February and March rent cleared my account on February 3.
Fortunately, because of the funds in my account on that date plus my overdraft, the second rent cheque didn’t bounce. That’s good, because I learned later that the fee nowadays for a NSF cheque is $42.50. However, there’s a $5 fee for going into overdraft plus so many cents’ interest for each day I’m in overdraft. While we’re only talking about $7 and some change, I argued that, on principle, I shouldn’t have to pay that fee because I didn’t deliberately go into overdraft. My bank, which is also my employer, readily agreed and immediately reimbursed me.
But seeing my account in negative territory forced me to look again at my budgeting workbook. Indeed, this incident had the effect of putting me back to zero — of starting on a clean slate. Plus you’ll recall that I had an uneasy feeling about my workbook because it looked like it worked but I couldn’t understand how and why. It’s only after spending nearly two hours studying every little formula throughout the workbook that I finally found MY mistake: in one spot, I was effectively counting the same amount twice! I thought about how my dear Cleopatrick would have a good laugh about that, seeing that I once “accused” him of double-counting, and here I was doing the same thing!
I would have had nearly $400 sitting around for later use if it hadn’t been for my mistake, meaning I still would have gone in overdraft but I wouldn’t have busted through the floor. In other words, I still would have had to make the argument that I shouldn’t have to pay overdraft fees, but I wouldn’t have had that moment of panic at Double Pizza. Plus I probably only would have discovered my super’s mistake this weekend.
Bottom line — pardon the pun — I fixed my workbook, transferred funds from my line of credit to create the savings I thought I had, and rejigged my expenses for February so that I’ll be on a tighter (but workable) budget than usual for the next two weeks. That’s no biggie because I’m not much in the mood for going out and doing much in the middle of February. Plus my March rent has been paid a full month ahead of time. So maybe my super’s mistake was a good thing in the end, as it finally made glaringly obvious my own mistake and I can now have full confidence in my masterful workbook.
I would love it if the old man who owns the building could be convinced of having us on pre-authorized debits. Mistakes can happen with those, too, but not as much if someone knowledgeable were to handle them. Ahem! Unfortunately, the old man doesn’t deal with the bank where I work.